Closing Costs Explained
Section A through F of the Loan Estimate. What is real, what is shoppable, what is junk.
Closing costs are the second-largest cash outlay in the purchase, after the down payment. On a $400,000 home, they typically run $8,000 to $20,000 depending on state and loan structure. Most of that is real. A meaningful slice is negotiable. A small slice is junk.
This guide walks the Loan Estimate in order, so when you get one you can read it like an inspector instead of a tourist.
Section A. Origination charges (lender fees)
This is the lender's pricing. Origination fee, discount points (if you bought any), application fee, processing fee, underwriting fee, document preparation, sometimes a rate-lock fee. A clean Section A on a 30-year conventional should be roughly $900 to $2,500 on most loan sizes, plus any discount points you elected to buy.
Anything called a courier fee, doc-prep fee, or e-sign fee is almost always pure margin and is a fair target for negotiation. You can also ask the lender to credit you any of these fees in exchange for a slightly higher rate (a lender credit). That trade is fair and explicit.
Section B. Services you cannot shop for
Appraisal ($550 to $750 for most properties), credit report ($35 to $90), flood certification ($15 to $25), tax service fee ($75 to $90). These are real costs to the lender and they pass them through. The appraisal is the largest line and is non-negotiable in price, although on a refi or jumbo you can sometimes get the lender to credit it.
Section C. Services you can shop for
Title insurance, settlement or escrow fee, survey, pest inspection, owner's title policy. Title is the biggest one and the most variable. In Texas the rate is set by the state. In Florida it is promulgated. In most other states it is competitive and you should get two or three quotes.
Lender's title policy is required. Owner's title policy is technically optional but you should buy it. It protects you, not the lender. The cost difference between bundled lender plus owner is usually 10 to 20 percent of the lender-only number, and it covers you for as long as you own the home.
Sections E and F. Taxes, recording, prepaids, escrow
Recording fees ($75 to $250 depending on county). Transfer taxes vary wildly by state. Florida charges $0.70 per $100 of price in doc stamps on the deed and $0.35 per $100 of mortgage in doc stamps on the note. Plus a 0.2 percent intangible tax on the mortgage. New York state charges 0.4 percent mortgage recording tax plus city add-ons.
Prepaids: prorated interest from closing date to month end, first year of homeowners insurance paid in advance, and the initial escrow deposit (usually 2 to 4 months of property tax and 2 months of insurance). These are not negotiable but they are predictable.
Where to push, where to shop, where to accept
Push on Section A. Shop Section C. Accept Sections B, E, and F as priced. The largest dollar wins are usually moving Section A from a high number to a market number, and shopping title and settlement. Together those two moves can save $1,500 to $4,000 on a typical purchase.
Frequently asked
Yes, often. Sellers can credit you toward closing costs, capped by loan type. Conventional with under 10 percent down: 3 percent of price. Conventional 10 to 25 percent down: 6 percent. FHA: 6 percent. VA: 4 percent of value (with broader rules). The credit appears as a line on the Closing Disclosure. It cannot exceed your actual closing costs.
Discount points on a primary residence are deductible in the year paid. Mortgage interest and property tax are deductible on Schedule A if you itemize. Most other closing costs are not currently deductible. They get added to your basis and reduce capital gains when you sell.
2 to 5 percent of price in most states. Florida and New York run higher because of state-specific transfer and recording taxes. Texas is mid-range. California is on the lower end relative to home price because there is no state mortgage tax.